Roulette Enterprises expects to pay a perpetual annual dividend of 65c. The beta of their stock has been calculated ex-post to be 0.8. If the market-risk premium and risk free rate were 8% p.a. and 7% p.a. respectively, what is the highest price an investor would pay for their shares?

Lancelot Fund Management has found the Holy Grail; a mean-variant efficient portfolio of stocks with an expected return of 25% p.a., a beta of 1.5 and a standard deviation of expected returns of 20% p.a. If the risk free rate is 7% p.a., deduce the expected market return and standard deviation.

Based on the attached information, calculate the expected return and standard deviation for the two stocks.
Probability of State of Economy Stock P Rate of Return Stock Q Rate of Return
State of Economy
Recession 0.15 0.04

Consider the information on the attached spreadsheet.
a. Your portfolio is invested 35% each in A and C, and 30% in B. What is the expected return of the portfolio?
b. What is the variance of this portfolio? The standard deviation?
Problem 11-10
Rate of Return, if State Occurs
Probability of
St

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